Riverbed Flows Toward Breakeven

Riverbed CEO Jerry Kennelly says he expects his company's recent IPO to push the WAFS vendor to at least breakeven, if not profitability, in the final quarter of the year -- despite mounting competition from larger rivals. (See Riverbed Reports Earnings and Riverbed Comes Out at $9.75.)

Riverbed made its first earnings report as a public company Thursday night, claiming $24.6 million in revenue for an increase of 36 percent from the previous quarter and 247 percent from last year. It remained in the red, although losses narrowed to $1 million, or $0.02 per share, compared to a loss of $4.6 million in the previous quarter and $3.5 million a year ago.

Kennelly forecast revenue of $28 million to $30 million this quarter, saying $29 million would be enough to break even.

"We think the IPO enhances our credibility," Kennelly says. "There had been a concern we were a private company with limited capitalization and could disappear at any time."

Kennelly says Riverbed picked up about 300 customers last quarter and has 1,300 in just over two years of shipping products. He says 44 percent of Riverbed customers make repeat purchases, including one firm that accounted for 13 percent of Riverbed's revenue last quarter. That would make it a $3 million-plus order. Riverbed would not name the customer.That one customer represented more revenue than at least two Riverbed competitors generated from their WAFS products last quarter. Packeteer reported $2.4 million and F5 Networks a mere $1.7 million from WAFS according to their recent earnings reports. (See Packeteer's WAFS Wobble.)

But Riverbed's competition may just be starting to heat up, with large rivals ratcheting their WAFS offerings. Since September, Cisco, Citrix, and Juniper all launched products based on technology picked up by acquiring Riverbed rivals over the past few years. (See Cisco Backs Into Optimization, Cisco Intros Services, Citrix Widens WAN Strategy, and Juniper Advances Solution.).

Cisco, considered the 800-pound gorilla of WAN optimization since acquiring Actona in 2004, is perceived as the biggest threat to Riverbed because of its place in networking and storage. But Kennelly says he welcomes the competition and called Cisco's latest offerings "warmed over" versions of older technology.

"We're floating in a sea of demand, and they're helping to expand that demand," Kennelly says. "There are individual customers who are Cisco through to the skin, but we've been competing against their product since Day One."

Riverbed may get a lot less help from partners than anticipated when it planned its IPO, though. HP terminated its OEM deal, although HP's Services Group resells the Riverbed appliances. (See HP Upgrade Features OEM Crowd.) Riverbed's other major OEM partner, McData, is in the process of being acquired by rival Brocade, which already has a WAFS partnership with Packeteer. (See McData Hits Remote Control.)"We continue to maintain a relationship with HP and go to market with them arm in arm," Riverbed's senior VP of business development Eric Wolford said on the earnings call. "McData is a story still to be told. That deal has not been closed, and when it is we'll know more."

Investors continued to back Riverbed after its earnings report. Its shares rose 6.6 percent to $25.64 today by midday, up from its $9.75 IPO price five weeks ago.

Dave Raffo, News Editor, Byte and Switch